Making sense of our ongoing social catastrophe. (An Orthosphere blog.)

5 posts categorized "Economics"

February 04, 2014

Long-time readers know that I regard employment as key to the health of any society. Employment integrates the individual with society in the pursuit of the common good; it enables him to discharge his duties to himself, his family, the state, and God; and it keeps him healthy, happy, productive, engaged, and mindful of his obligations to others. Unemployed people suffer physically and mentally, their families tend to disintegrate as they sink into poverty and despair, and they tend toward political extremism, crime, and other indicators of social pathology. A society that doesn't take employment seriously, that thinks having a sizable proportion of its people unemployed is good, and that is willing to tolerate any degree of chronic and involuntary unemployment, is radically deficient, not only organizationally but morally and with respect to its basic priorities.

Work, in other words, corresponds to human nature in a very real and powerful way. (Hobbies and social activism serve the same purpose for those who are moneyed enough not to need to work, at least not regularly). It's not for nothing that earlier societies envisioned work as a form of prayer: a divine office, executed with a humble heart, in accordance with the will of God.

Unfortunately, modern society has more or less succeeded in severing the link between work and the natural human impulses that rationalize and ennoble it. Man is atomized, reduced to interchangeable cogs in a utilitarian economic machine. He is fired wantonly and encouraged to change jobs for reasons of even minor convenience. The resulting bitterness, despair, and alienation is captured perfectly in movies like Office Space and Falling Down. The modern historical norm of hating one's job, detesting one's coworkers, resenting one's superiors and exploiting one's subordinates is grossly unhealthy from both an individual and social perspective.

For myself, I feel ludicrous guilt even contemplating leaving my current job, and not only because there are many who'd be happy to have it and my gripes are pretty minor. Work itself is a gift, and man ought to -- indeed, wants to -- be in a position in which he can cherish it, as he would any good thing. Modern society affords him no such opportunity; indeed, it abstracts from our economic order all that makes it human and salvages only that which makes it impersonal, bureaucratic, and insufferable. This is true not only at the micro level but at the macro, too. Suppose our elite was presented with two economic plans: one would cause the Dow to shrink to around 2,000 (much closer to the historical norm) but cause unemployment to drop within rounding error of zero, putting all those who want work in stable jobs that would provide for at least their basic necessities; the other would put 20% of the population out of work but cause the Dow to rocket up to 50,000. Which would they pick? We all know the answer.

What can be done to repair this situation? For one thing, recognition of the fact that stability in employment matters is necessary. It's not enough that a man should always be able to find a job somewhere; having to find a new job every 12 months is a bad, or at least suboptimal, situation. He must, if he wants, always be employed at the same place or by the same company. A community of fellows (which is really all a workplace is, and the demand for which arises from human nature) cannot spring up where the population is transient. Ask anyone who lives in a sizable military town.

Deprioritization of economic goods in favor of basic human goods matters, too. "Is this good for GDP" should be asked only after "Is this good for the health of the polity" is answered favorably. We should resort to technocratic economic number-crunching only where failure to do so imperils our primary goal of promoting a healthy and integrated social order, and even then subordinate it to that goal, seeking to cause as little disruption as possible.

How do we enforce this? Possibly the same way we enforce our present order, which seeks to smash the traditional family, unduly elevate talentless minorities just to stick it to white people, and enrich psychotic criminals. That is to say, announce a set of standards and then proceed to severely sanction--socially, financially, and legally--any employer who does not comply, while rewarding to the greatest extent possible those that do. Carrot and stick. It works for the PC apparatchniks; it can work for us, too.

December 30, 2011

The tipping point for economic collapse is coming up quickly, perhaps as early as next year. We've been through this sort of mess once before, but the America of 2012 is a vastly different nation than was the America of 1929. Let's take a few moments to examine these differences.

First, while we're heading for depression, the coming one will be markedly more severe. GDP contracted a total of 30% in four years; the necessary correction to bring GDP in line with our present levels of economic output will be more on the order of 50%.

This time, public distrust, suspicion, and contempt of the American government is at an all-time high.

This time, our ethnic minorities are considerably more numerous, more radicalized, and more violent, to the point that they are constantly shooting people over sneakers, getting arrested for losing their minds in fast-food restaurants, and stabbing their coworkers with screwdrivers.

This time, virtually no one is a farmer or even knows how to farm (back then, virtually everyone was capable of at least subsistence farming).

This time, society is in thrall to an ideology that regards pain and suffering as the worst possible evil and suicide as a perfectly valid means of avoiding such.

This time, dependence on the government is already at a record high and there will be no money left to help out the poor.

This time, there are clear villains -- the financial-political complex.

This time, the American identity as such is considerably weakened after decades of propositional-nation nonsense, mass immigration, and political correctness.

This time, we share our porous southern border with a violent narco-state (in fairness, this isn't much worse than the violent atheistic despotism we shared it with back in the 20's).

The government's contention thus raises a question of far greater importance than the particular claim of the plaintiff. On that reasoning, if the terms of the government's bond as to the standard of payment can be repudiated, it inevitably follows that the obligation as to the amount to be paid may also be repudiated. The contention necessarily imports that the Congress can disregard the obligations of the government at its discretion, and that, when the government borrows money, the credit of the United States is an illusory pledge.

We do not so read the Constitution. There is a clear distinction between the power of the Congress to control or interdict the contracts of private parties when they interfere with the exercise of its constitutional authority and the power of the Congress to alter or repudiate the substance of its own engagements when it has borrowed money under the authority which the Constitution confers. In authorizing the Congress to borrow money, the Constitution empowers the Congress to fix the amount to be borrowed and the terms of payment. By virtue of the power to borrow money 'on the credit of the United States,' the Congress is authorized to pledge that credit as an assurance of payment as stipulated, as the highest assurance the government can give, its plighted faith. To say that the Congress may withdraw or ignore that pledge is to assume that the Constitution contemplates a vain promise; a pledge having no other sanction than the pleasure and convenience of the pledgor. This Court has given no sanction to such a conception of the obligations of our government.

First, let's take a look again at what the 14th Amendment actually says:

﻿The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

As I argued yesterday, there is nothing in the plain text of the amendment that requires Congress to actually repay its debt -- only to acknowledge its validity. Properly understood, the amendment merely asserts that the debt issued in accordance with an act of Congress is the federal government's debt, while debt issued by illegitimate authorities is not. There is nothing in it that forbids Congress from repudiating, in another act of law, the debt it previously accrued, or to restructure its debt, renegotiate the payment schedule, or otherwise modify its obligations.

Nothing in the main text of the Constitution, either, forbids repudiation: Article I, section 8 merely grants Congress the power "To borrow money on the credit of the United States." However, given the Court's decision in Perry v. United States, it is now the case that there is a Constitutional obligation to repay debt. In other words, the requirement to pay debt is now a Constitutional requirement, and to repudiate debt is a necessarily illegitimate and unconstitutional act.

This is a profound problem.

In 1935, the Court essentially acted to shackle the republic to its finances -- forever. Our debt situation is, at the moment, bearable, but painful: if we act to balance the budget now, we will only need to run a primary surplus of $400 billion or so annually to amortize our debt. But we're not going to balance our budget now. Most likely, we're going to settle for relatively minor cuts and tax hikes paired with a debt ceiling increase that will result in an immediate credit downgrade by the major ratings agencies, followed by an increase in borrowing costs. That increase will widen the deficit (probably erasing the savings made by the cuts Congress previously agreed to) and make our debt situation worse. Very likely, we will enter a credit-downgrade spiral that will be progressively harder and harder for us to climb out of.

No matter how unreasonable or even mathematically impossible it becomes to finance our debt, we will never be able to repudiate it.

The only way to escape the impossible situation we wil find ourselves in, therefore, will be to repudiate the Constitution itself.

﻿If Congress is unable to agree on a plan to raise the nation's $14.3 trillion debt ceiling, Obama will have to decide which government bills to pay and which not to pay — or to simply ignore Congress, pay all the bills and simply raise the debt ceiling on his own.

"I would say it's legally treacherous no matter what he does," said Peter Shane, an Ohio State law professor.

Obama and his aides say he lacks the constitutional power to raise the debt limit, but that hasn't stopped a rising number of Democratic lawmakers and legal analysts from pushing him to change his mind.

Obama can cite the 14th Amendment of the Constitution, which says "the validity of the public debt … shall not be questioned," said Rep. James Clyburn, D-S.C.

Perspective here is important. Here's the actual text of the relevant part of the 14th Amendment, including the parts conveniently omitted by Clyburn:

﻿The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

The important word phrasing here is "validity" and "shall not be questioned." What the plain, black-letter text of the Constitutionally requires is simply an acknowledgment that the debt accrued by law by the federal government is, in fact, the federal government's. (Hence, the Union must pay the debts it accrued to fight the Civil War, but it need not assume the debts of the defeated Confederate states).

Nothing in the text of the amendment requires repayment; if not for a contrary Supreme Court decision dating from the 1950s or so, I wouldn't see why the government couldn't simply acknowledge the validity of its debt by repudiating it. But even if it did require repayment eventually, there is certainly nothing about it that requires the debt be repaid on time or without restructuring.

The issue is kind of a red herring, anyway: the debt is not at question here. Debt service is something like 20% of our annual tax revenues; even in the lowest-revenue months we can still make debt service payments with room to spare. It's everything else that's at question here, and it's in order to fund everything that isn't the debt that President Obama would be claiming to act on a provision that explicitly protects solely the debt.

Would he do this? At this point, I wouldn't put it past him. The man's gall is almost obscene.

April 19, 2011

Larry Kudlow suggests a Constitutional amending limiting federal spending to 20% of GDP will "﻿go a long way toward fixing the debt-bomb problem." 20% is based on the historical average upper-limit of the United States federal government's ability to collect tax revenue, as observed by Hauser's Law.

But such a cap would not, in fact, help. Here's why.

Federal spending in 2010 was just over $3.5 trillion, of which $1.7 trillion was deficit-spending (use the Treasury's Debt to the Penny report, not the "official" government report, which includes on-budget line items only and thus ignores off-budget deficits in Social Security for which the federal government will still ultimately be responsible). Assume GDP of perhaps $14.5 trillion. This limits federal spending to roughly $2.9 trillion, which saves $600 billion in deficit-spending. It does nothing to address the remaining $1.1 trillion in deficits.

The problem: GDP, itself, is indexed to deficit spending, as I document here. The "G" term (for government spending) in GDP is perfectly balanced out by reductions in money available for consumption ("C") and investment ("I") when the balance is budget; its impact on GDP is thus positively only the money is borrowed or printed. So cutting $600 billion in deficit-spending contracts GDP from $14.5 trillion to $13.9, reducing the federal spending cap to $2.78 billion and necessitating an additional $120 billion in spending cuts.

This, in turn, reduces GDP to $13.78 trillion and federal spending to $2.756 trillion, which requires a downward adjustment in deficit spending of an additional $2.4 billion. This continues in successively smaller increments until deficit spending and GDP converge.

That GDP is inseparable from deficit spending means such a cap would necessitate constant, disorderly, messy budgetary revisions throughout the year -- assuming they choose to recognize, at all, that the two cannot be separated. Since they don't recognize it now, there's no reason to expect they will in the future. Hence, the spending cap would be systematically violated, anyway, and deficit-spending would continue unabated -- albeit, perhaps, not as strongly.

The point is that if fiscal conservatives are going to expend any political capital at all, they had better do so fighting for a balanced budget amendment. They won't, of course, because only minority parties are ever fiscally conservative: deep in their black hearts, they know fiscal conservatism destroys (unsustainable, debt-based) GDP, so they only want it when the majority party can take the blame for the resulting recession.

Of course, the balanced budget amendment has different problems: namely, that tax revenue is also tied to deficit spending. Thus, there are no quick fixes here, and certainly none that foist the problem off on the judiciary. Congress simply has to pull out the budget knives and start cutting -- and cutting more than it apparently needs to, as their actions today will have direct and coercive impacts on future budgetary calculations.